THOUGHTS ON WEDNESDAY’S DATA
Another day of mixed data. Stock futures started the day strong on the back of a strong session across the board in Europe. The data unfortunately, doesn’t back the strong move in stocks. Pending home sales came in 0.1% higher which was in-line with expectations. Construction spending declined 0.9% which was worse than the -0.6% analysts expected. The year on year decline was 11.1%. Econday reports:
Overall, construction is still is in recession as homebuilders wait for unsold supply to dwindle, commercial builders are still hamstrung by reduced corporate profits, and public outlays have been curtailed by a decline in government revenues. On today’s news, bond yields were little changed while equities eased slightly. But the markets had much to digest as the ISM manufacturing index improved and came in close to expectations while the pending home sales index edged upward. Net for the morning, the economic news points closer to the bottom of recession.
The ADP employment report came in much worse than expected at -473K. Analysts had been calling for a decline of -394K. ISM came in roughly in-line at 44.8 and continues to show signs of improvement. The ISM report included the following comments:
- “Customer inventory burn is complete and real demand has reappeared.” (Machinery)
- “… a lot of people are requoting old business and using favorable pricing to negotiate with their current suppliers.” (Computer & Electronic Products)
- “Banks are reluctant to lend to businesses, and until this changes the economy will continue to be weak.” (Fabricated Metal Products)
- “Slow June, but firm large orders in July, August and September.” (Food, Beverage & Tobacco Products)
- “Market appears to have bottomed out as aftermarket has picked up slightly over the past month.” (Transportation Equipment)
The market response appears to be more of a quarterly front running phenomenon as opposed to a response to the mixed data. This could be seen as a contrarian indicator for the second half as much as it could be seen as a positive sign….
